The space between climate change and financial statements

The TCFD wants to improve the quality of climate-related financial disclosures, and that means company filings that capture the impact of climate change on businesses over time.This goal goes beyond just producing, as the TCFD calls it, “forward-looking” climate information. It also requires that both the risks and opportunities of climate change be broadly integrated with financial statements.

But big challenges arise from the TCFD recommendations. The obvious one is that there are no specific standards or methodologies to integrate such disclosures into accounting practices.Financial accounting standards do not mention “climate change” and by definition are backward looking, designed to produce financial statements that portray the true and fair position of a company at a year-end. They are a snapshot of the past, not the future.

Jon Williams, a member of the TCFD and PwC Sustainability & Climate Change Partner, says: “In my view, rather than trying to spend the next decade coming up with a new climate-change reporting standard, it will be useful for the TCFD or another body to produce an interpretation of accounting standards through the lense of climate change.”

The TCFD final report highlights the “interconnectivity of its recommendations with existing financial statement and disclosure requirements” of the IASB and FASB. It explicitly mentions IAS 36 (impairment of assets) and IAS 37 (provisions, contingent liabilities and contingent assets).